Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o(Do not check if a smaller reporting company)

Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ

The number of shares outstanding of the registrants
common stock as of May 3, 2011 was 81,111,096.

F5 Networks, Inc. (the Company) provides products and services to help companies manage
their Internet Protocol (IP) traffic and file storage infrastructure efficiently and securely. The
Companys application delivery networking products improve the performance, availability and
security of applications on Internet-based networks. Internet traffic between network-based
applications and clients passes through these devices where the content is inspected to ensure that
it is safe and modified as necessary to ensure that it is delivered securely and in a way that
optimizes the performance of both the network and the applications. The Companys storage
virtualization products simplify and reduce the cost of managing files and file storage devices,
and ensure fast, secure, easy access to files for users and applications. The Company also offers a
broad range of services that include consulting, training, maintenance and other technical support
services.

Basis of Presentation

The year end condensed consolidated balance sheet data was derived from audited financial
statements, but does not include all disclosures required by accounting principles generally
accepted in the United States of America. In the opinion of management, the unaudited consolidated
financial statements reflect all adjustments, consisting only of normal recurring adjustments,
necessary for their fair statement in conformity with accounting principles generally accepted in
the United States of America. Certain information and footnote disclosures normally included in
annual financial statements have been condensed or omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. The information included in this Form 10-Q
should be read in conjunction with Managements Discussion and Analysis of Financial Condition and
Results of Operations and financial statements and notes thereto included in the Companys Annual
Report on Form 10-K for the fiscal year ended September 30, 2010.

Certain reclassifications have been made to the prior years financial statements to conform
to the fiscal year 2011 presentation. Such reclassifications did not affect total revenues,
operating income or net income.

Revenue Recognition

The Company sells products through distributors, resellers, and directly to end users. Revenue
is recognized provided that all of the following criteria have been met:

Persuasive evidence of an arrangement exists. Evidence of an arrangement generally consists of
a purchase order issued pursuant to the terms and conditions of a distributor, reseller or end user
agreement.

Delivery has occurred. The Company uses shipping or related documents, or written evidence of
customer acceptance, when applicable, to verify delivery or completion of any performance terms.

The sales price is fixed or determinable. The Company assesses whether the sales price is
fixed or determinable based on payment terms associated with the transaction and whether the sales
price is subject to refund or adjustment.

Collectability is reasonable assured. The Company assesses collectability primarily based on
the creditworthiness of the customer as determined by credit checks and related analysis, as well
as the Customers payment history.

In certain regions where the Company does not have the ability to reasonably estimate returns,
the Company defers revenue on sales to its distributors until they have received information from
the channel partner indicating that the product has been sold to the end-user customer. Payment
terms to domestic customers are generally net 30 days to net 45 days. Payment terms to
international customers range from net 30 days to net 120 days based on normal and customary trade
practices in the individual markets. The Company offers extended payment terms to certain
customers, in which case, revenue is recognized when payments are due.

Whenever product, training services and post-contract customer support (PCS) elements are
sold together, a portion of the sales price is allocated to each element based on their respective
fair values as determined when the individual elements are sold separately. Revenue from the sale
of products is recognized when the product has been shipped and the customer is obligated to pay
for the product. When rights of return are present and the Company cannot estimate returns, it
recognizes revenue when such rights of return lapse. Revenues for PCS are recognized on a
straight-line basis over the service contract term. PCS includes a limited period of telephone
support updates, repair or replacement of any failed product or component that fails during the
term of the agreement, bug fixes and rights to upgrades, when and if available. Consulting services
are customarily billed at fixed hourly rates, plus out-of-pocket expenses, and revenues are
recognized when the consulting has been completed. Training revenue is recognized when the training
has been completed.

In October 2009, the Financial Accounting Standards Board (FASB) amended the accounting
standards for revenue recognition to remove from the scope of industry-specific software revenue
recognition guidance any tangible products containing software components and non-software
components that operate together to deliver the products essential functionality. In addition, the
FASB amended the accounting standards for certain multiple element revenue arrangements to:



Provide updated guidance on whether multiple elements exist, how the elements in an
arrangement should be separated, and how the arrangement consideration should be
allocated to the separate elements;



Require an entity to allocate arrangement consideration to each element based on a
selling price hierarchy, where the selling price for an element is based on
vendor-specific objective evidence (VSOE), if available, third-party evidence (TPE),
if available and VSOE is not available; or the best estimate of selling price (BESP),
if neither VSOE or TPE is available; and



Eliminate the use of the residual method and require an entity to allocate
arrangement consideration using the selling price hierarchy.

The Company adopted this guidance in the first quarter of fiscal year 2011 on a prospective
basis for applicable arrangements originating or materially modified after October 1, 2010. The
impact of this adoption was not material to the Companys financial position and results of
operations for the three and six months ended March 31, 2011.

The majority of the Companys products are hardware appliances which contain software
essential to the overall functionality of the products. Accordingly, the Company no longer
recognizes revenue on sales of these products in accordance with the industry-specific software
revenue recognition guidance.

For all transactions entered into prior to the first quarter of fiscal year 2011 and for sales
of nonessential and stand-alone software after October 1, 2010, the Company allocates revenue for
arrangements with multiple elements based on the software revenue recognition guidance. Software
revenue recognition guidance requires revenue earned on software arrangements involving multiple
elements to be allocated to each element based on the relative fair values of those elements. The
fair value of an element must be based on VSOE. Where fair value of certain elements is not
available, revenue is recognized on the residual method based on the fair value of undelivered
elements. If evidence of the fair value of one or more undelivered elements does not exist, all
revenue is deferred and recognized at the earlier of the delivery of those elements or the
establishment of fair value of the remaining undelivered elements.

For transactions entered into subsequent to the adoption of the amended revenue recognition
standards that are multiple-element arrangements, the arrangement consideration is allocated to
each element based on the relative selling prices of all of the elements in the arrangement using
the fair value hierarchy in the amended revenue recognition guidance.

Consistent with the methodology used under the previous accounting guidance, the Company
establishes VSOE for its products, training services, PCS and consulting services based on the
sales price charged for each element when sold separately. The sales price is discounted from the
applicable list price based on various factors including the type of customer, volume of sales,
geographic region and program level. The Companys list prices are generally not fair value as
discounts may be given based on the factors enumerated above. The Company believes that the fair
value of its consulting services is represented by the billable consulting rate per hour, based on
the rates they charge customers when they purchase standalone consulting services. The price of
consulting services is not based on the type of customer, volume of sales, geographic region or
program level.

The Company uses historical sales transactions to determine whether VSOE can be established
for each of the elements. In most instances, VSOE of fair value is the sales price of actual
standalone (unbundled) transactions within the past 12 month period that are priced within a
reasonable range, which the Company has determined to be plus or minus 15% of the median sales
price of each respective price list.

VSOE of PCS is based on standalone sales since the Company does not provide stated renewal
rates to its customers. In accordance with the Companys PCS pricing practice (supported by
standalone renewal sales), renewal contracts are priced as a percentage of the undiscounted product
list price. The PCS renewal percentages may vary, depending on the type and length of PCS
purchased. The Company offers standard and premium PCS, and the term generally ranges from one to
three years. The Company employs a bell-shaped-curve approach in evaluating VSOE of fair value of
PCS. Under this approach, the Company considers VSOE of the fair value of PCS to exist when a
substantial majority of its standalone PCS sales fall within a narrow range of pricing.

The Company is typically not able to determine TPE for its products or services. TPE is
determined based on competitor prices for similar elements when sold separately. Generally, the
Companys go-to-market strategy differs from that of other competitive products or services in its
markets and the Companys offerings contain a significant level of differentiation such that the
comparable pricing of products with similar functionality cannot be obtained. Furthermore, the
Company is unable to reliably determine the selling prices on a stand-alone basis of similar
products offered by its competitors.

When the Company is unable to establish selling price of its non-software elements using VSOE
or TPE, the Company uses BESP in its allocation of arrangement consideration. The objective of BESP
is to determine the price at which the Company would transact a sale if the product or service were
sold on a stand-alone basis. The Company determines BESP for a product or service by considering
multiple factors including, but not limited to, cost of products, gross margin objectives, pricing
practices, geographies, customer classes and distribution channels.

The Company has established and regularly validates the VSOE of fair value and BESP for
elements in its multiple element arrangements. The Company accounts for taxes collected from
customers and remitted to governmental authorities on a net basis and excluded from revenues.

Goodwill

Goodwill represents the excess purchase price over the estimated fair value of net assets
acquired as of the acquisition date. The Company tests goodwill for impairment on an annual basis
and between annual tests when impairment indicators are identified, and goodwill is written down
when impaired. Goodwill was recorded in connection with the acquisition of Acopia Networks, Inc. in
fiscal year 2007, Swan Labs, Inc. in fiscal year 2006, MagniFire Websystems, Inc. in fiscal year
2004 and uRoam, Inc. in fiscal year 2003.

The Company performs its annual goodwill impairment test during the second fiscal quarter, or
whenever events or changes in circumstances indicate that the carrying amount of goodwill may not
be recoverable. The first step of the test identifies whether potential impairment may have
occurred, while the second step of the test measures the amount of the impairment, if any.
Impairment is recognized when the carrying amount of goodwill exceeds its fair value. For its
annual goodwill impairment analysis, the Company operates under one reporting unit. The Company
determined the fair value of its reporting unit based on the Companys enterprise value. In March
2011, the Company completed its annual impairment test and concluded there was no impairment of
goodwill.

Stock-Based Compensation

The Company accounts for stock-based compensation using the straight-line attribution method
for recognizing compensation expense. The Company recognized $21.8 million and $16.5 million of
stock-based compensation expense for the three months ended March 31, 2011 and 2010, respectively,
and $44.7 million and $33.6 million for the six months ended March 31, 2011 and 2010, respectively.
As of March 31, 2011, there was $70.2 million of total unrecognized stock-based compensation cost,
the majority of which will be recognized over the next two years. Going forward, stock-based
compensation expenses may increase as the Company issues additional equity-based awards to continue
to attract and retain key employees.

The Company issues incentive awards to its employees through stock-based compensation
consisting of restricted stock units (RSUs). On August 2, 2010, the Company awarded approximately
910,000 RSUs to employees and executive officers pursuant to the Companys annual equity and
retention awards programs. The value of RSUs is determined using the fair value method, which in
this case, is based on the number of shares granted and the quoted price of the Companys common
stock on the date of grant.

The Company recognizes compensation expense for only the portion of restricted stock units
that are expected to vest. Therefore, the Company applies estimated forfeiture rates that are
derived from historical employee termination behavior. Based on historical differences with
forfeitures of stock-based awards granted to the Companys executive officers and Board of
Directors versus grants awarded to all other employees, the Company has developed separate
forfeiture expectations for these two groups. The Companys estimated forfeiture rate in the second
quarter of fiscal year 2011 is 2.7% for grants awarded to the Companys executive officers and
Board of Directors, and 9.7% for grants awarded to all other employees. If the actual number of
forfeitures differs from those estimated by management, additional adjustments to compensation
expense may be required in future periods.

In August 2010, the Company granted 181,334 and 83,000 RSUs to certain current executive
officers as part of the annual equity and retention awards programs, respectively. Fifty percent of
the aggregate number of RSUs granted as part of the annual equity awards program vest in equal
quarterly increments over three years, until such portion of the grant is fully vested on August 1,
2013.

One-sixth of the annual equity awards RSU grant, or a portion thereof, is subject to the
Company achieving specified quarterly revenue and EBITDA goals during the period beginning in the
fourth quarter of fiscal year 2010 through the third quarter of fiscal year 2011. In each case, 50%
of the quarterly performance stock grant is based on achieving at least 80% of the quarterly
revenue goal and the other 50% is based on achieving at least 80% of the quarterly EBITDA goal. The
quarterly performance stock grant is paid linearly above 80% of the targeted goals. At least 100%
of both goals must be attained in order for the quarterly performance stock grant to be awarded
over 100%. Each goal is evaluated individually and subject to the 80% achievement threshold and
100% over-achievement threshold. The remaining 33.33% of this annual equity awards RSU grant shall
be subject to performance based vesting for each of the four quarter periods beginning with the
fourth quarters of fiscal years 2011 and 2012 (16.66% in each period). The Compensation Committee
of the Board of Directors will set applicable performance targets and vesting formulas for each of
these periods. All RSUs granted as part of the retention awards program fully vest on August 1,
2013.

In August 2009, the Company granted 420,000 RSUs to certain current executive officers. Fifty
percent of the aggregate number of RSUs granted at such time vest in equal quarterly increments
over two years, until such portion of the grant is fully vested on August 1, 2011. Twenty-five
percent of the RSU grant, or a portion thereof, was subject to the Company achieving specified
quarterly revenue and EBITDA goals during the period beginning in the fourth quarter of fiscal year
2009 through the third quarter of fiscal year 2010 and the remaining twenty-five percent is subject
to the Company achieving specified quarterly revenue and EBITDA goals during the period beginning
in the fourth quarter of fiscal year 2010 through the third quarter of fiscal year 2011. In each
case, 50% of the quarterly performance stock grant is based on achieving at least 80% of the
quarterly revenue goal and the other 50% is based on achieving at least 80% of the quarterly EBITDA
goal. The quarterly performance stock grant is paid linearly above 80% of the targeted goals. At
least 100% of both goals must be attained in order for the quarterly performance stock grant to be
awarded over 100%. Each goal is evaluated individually and subject to the 80% achievement threshold
and 100% over-achievement threshold.

The Company recognizes compensation costs for awards with performance conditions when it
concludes it is probable that the performance condition will be achieved. The Company reassesses
the probability of vesting at each balance sheet date and adjusts compensation costs based on the
probability assessment.

Common Stock Repurchase

On October 22, 2008, the Company announced that its Board of Directors approved a program to
repurchase up to an additional $200 million of the Companys outstanding common stock. As of
September 30, 2010, the Company had $37.6 million remaining to purchase shares as part of this
repurchase program. On October 26, 2010, the Company announced that its Board of Directors approved
a new program to repurchase up to an additional $200 million of the Companys outstanding common
stock. Acquisitions for the share repurchase programs will be made from time to time in private
transactions or open market purchases as permitted by securities laws and other legal requirements.
The programs can be terminated at any time. As of May 3, 2011, the Company had repurchased and
retired 5,134,929 shares at an average price of $45.51 per share and the Company had $166.0 million
remaining to purchase shares as part of its repurchase programs.

Earnings Per Share

Basic net income per share is computed by dividing net income by the weighted average number
of common shares outstanding during the period. Diluted net income per share is computed by
dividing net income by the weighted average number of common and dilutive common stock equivalent
shares outstanding during the period. The Companys nonvested restricted stock awards and
restricted stock units do not have nonforfeitable rights to dividends or dividend equivalents.

The following table sets forth the computation of basic and diluted net income per share (in
thousands, except per share data):

Three months ended

Six months ended

March 31,

March 31,

2011

2010

2011

2010

Numerator

Net income

$

55,575

$

33,144

$

111,238

$

62,423

Denominator

Weighted average shares outstanding  basic

80,809

79,394

80,726

79,147

Dilutive effect of common shares from stock
options and restricted stock units

813

1,343

944

1,483

Weighted average shares outstanding  diluted

81,622

80,737

81,670

80,630

Basic net income per share

$

0.69

$

0.42

$

1.38

$

0.79

Diluted net income per share

$

0.68

$

0.41

$

1.36

$

0.77

An immaterial amount of common shares potentially issuable from stock options for the three
and six months ended March 31, 2011 and 2010, are excluded from the calculation of diluted earnings
per share because the exercise price was greater than the average market price of common stock for
the respective periods.

Comprehensive Income

Comprehensive income includes certain changes in equity that are excluded from net income.
Specifically, unrealized gains (losses) on securities and foreign currency translation adjustments
are included in accumulated other comprehensive loss. Comprehensive income and its components were
as follows (in thousands):

Three months ended

Six months ended

March 31,

March 31,

2011

2010

2011

2010

Net Income

$

55,575

$

33,144

$

111,238

$

62,423

Unrealized loss on securities, net of tax

(309

)

(310

)

(963

)

(811

)

Foreign currency translation adjustment

159

(435

)

(428

)

(446

)

Total comprehensive income

$

55,425

$

32,399

$

109,847

$

61,166

Recent Accounting Pronouncements

Management believes there have been no significant changes during the six months ended March
31, 2011, to the items disclosed as recently adopted accounting pronouncements in Managements
Discussion and Analysis of Financial Condition and Results of Operations in the Companys Annual
Report on Form 10-K for the year ended September 30, 2010. For a further discussion, refer to the
Recent Accounting Pronouncements discussion contained therein.

2. Fair Value Measurements

In accordance with the authoritative guidance on fair value measurements and disclosure under
GAAP, the Company determines fair value using a fair value hierarchy that distinguishes between
market participant assumptions developed based on market data obtained from sources independent of
the reporting entity, and the reporting entitys own assumptions about market participant
assumptions developed based on the best information available in the circumstances and expands
disclosure about fair value measurements.

Fair value is the price that would be received to sell an asset or paid to transfer a
liability in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants at the measurement date, essentially the exit price.

The levels of fair value hierarchy are:

Level 1: Quoted prices in active markets for identical assets and liabilities at the
measurement date.

Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices
for similar assets and liabilities in active markets; quoted prices for identical or similar assets
and liabilities in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data.

Level 3: Unobservable inputs for which there is little or no market data available. These
inputs reflect managements assumptions of what market participants would use in pricing the asset
or liability.

Level 1 investments are valued based on quoted market prices in active markets and include the
Companys cash equivalent investments. Level 2 investments, which include investments that are
valued based on quoted prices in markets that are not active, broker or dealer quotations, or
alternative pricing sources with reasonable levels of price transparency, include the Companys
corporate bonds and notes, municipal bonds and notes and U.S. government securities. Fair values
for the Companys level 2 investments are based on similar assets without applying significant
judgments. In addition, all of the Companys level 2 investments have a sufficient level of trading
volume to demonstrate that the fair values used are appropriate for these investments.

A financial instruments level within the fair value hierarchy is based upon the lowest level
of any input that is significant to the fair value measurement. However, the determination of what
constitutes observable requires significant judgment by the Company. The Company considers
observable data to be market data which is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary, and provided by independent sources that are actively
involved in the relevant market.

The Companys financial assets measured at fair value on a recurring basis subject to the
disclosure requirements at March 31, 2011, were as follows (in thousands):

Fair Value Measurements at Reporting Date Using

Quoted Prices in

Significant

Significant

Active Markets for

Other Observable

Unobservable

Fair Value at

Identical Securities

Inputs

Inputs

March 31,

(Level 1)

(Level 2)

(Level 3)

2011

Cash equivalents

$

38,786

$



$



$

38,786

Short-term investments

Available-for-sale securities  corporate bonds and notes



118,939



118,939

Available-for-sale securities  municipal bonds and notes



54,966



54,966

Available-for-sale securities  U.S. government securities



95,136



95,136

Long-term investments

Available-for-sale securities  corporate bonds and notes



139,413



139,413

Available-for-sale securities  municipal bonds and notes



24,585



24,585

Available-for-sale securities  U.S. government securities



341,542



341,542

Available-for-sale securities  auction rate securities





16,380

16,380

Total

$

38,786

$

774,581

$

16,380

$

829,747

The Companys financial assets measured at fair value on a recurring basis subject to the
disclosure requirements at September 30, 2010, were as follows (in thousands):

Due to the auction failures of the Companys auction rate securities (ARS) that began in the
second quarter of fiscal year 2008, there are still no quoted prices in active markets for similar
assets as of March 31, 2011. Therefore, the Company has classified its ARS as level 3 financial
assets. The following table provides a reconciliation between the beginning and ending balances of
items measured at fair value on a recurring basis in the table above that used significant
unobservable inputs (Level 3) (in thousands):

Three months ended

Six months ended

March 31,

March 31,

2011

2010

2011

2010

Balance, beginning of period

$

16,260

$

41,893

$

16,043

$

41,595

Total losses realized or unrealized:

Included in earnings (other income, net)



500



(19

)

Included in other comprehensive income

120

110

337

408

Recognition of put option to earnings



(500

)



19

Settlements



(4,550

)



(4,550

)

Transfers into and/or out of level 3









Balance, end of period

$

16,380

$

37,453

$

16,380

$

37,453

Gains attributable to assets still held as of end of period

120

110

337

408

Financial assets are considered Level 3 when their fair values are determined using pricing
models, discounted cash flow methodologies or similar techniques and at least one significant model
assumption or input is unobservable or there is limited market activity such that the determination
of fair value requires significant judgment or estimation. Level 3 investment securities primarily
include certain ARS for which there was a decrease in the observation of market pricing. At March
31, 2011, the values of these securities were estimated primarily using discounted cash flow
analysis that incorporated transaction details such as contractual terms, maturity, timing and
amount of future cash flows, as well as assumptions about liquidity and credit valuation
adjustments of marketplace participants at March 31, 2011.

The Company uses the fair value hierarchy for financial assets and liabilities. The Companys
non-financial assets and liabilities, which include goodwill, intangible assets, and long-lived
assets, are not required to be carried at fair value on a recurring basis. These non-financial
assets and liabilities are measured at fair value on a non-recurring basis when there is an
indicator of impairment, and they are recorded at fair value only when impairment is recognized.
The Company reviews goodwill and intangible assets for impairment annually, during the second
quarter of each fiscal year, or as circumstances indicate the possibility of impairment. The
Company monitors the carrying value of long-lived assets for impairment whenever events or changes
in circumstances indicate its carrying amount may not be recoverable. During the three months ended
March 31, 2011, the Company did not recognize any impairment charges related to goodwill,
intangible assets, or long-lived assets.

The amortized cost and fair value of fixed maturities at March 31, 2011, by contractual
years-to-maturity, are presented below (in thousands):

Cost or

Amortized

Cost

Fair Value

One year or less

$

268,484

$

269,041

Over one year

524,590

521,920

$

793,074

$

790,961

The cost or amortized cost values of the Companys fixed maturities include $19.0 million of
available-for-sale ARS as of March 31, 2011 and September 30, 2010.

The following table summarizes investments that have been in a continuous unrealized loss
position for less than 12 months and those that have been in a continuous unrealized loss position
for more than 12 months as of March 31, 2011 (in thousands):

Less Than 12 Months

12 Months or Greater

Total

Gross

Gross

Gross

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

March 31, 2011

Value

Losses

Value

Losses

Value

Losses

Corporate bonds and notes

$

73,383

$

(156

)

$



$



$

73,383

$

(156

)

Municipal bonds and notes

17,630

(89

)

8,453

(2

)

26,083

(91

)

Auction rate securities





16,380

(2,620

)

16,380

(2,620

)

U.S. government securities

244,532

(608

)





244,532

(608

)

Total

$

335,545

$

(853

)

$

24,833

$

(2,622

)

$

360,378

$

(3,475

)

The Company invests in securities that are rated investment grade or better. The unrealized
losses on investments for the first six months of fiscal year 2011 were primarily caused by
reductions in the values of the ARS due to the illiquid markets and were partially offset by
unrealized gains related to interest rate decreases.

ARS are variable-rate debt securities. The Company limits its investments in ARS to securities
that carry an AAA/A- (or equivalent) rating from recognized rating agencies and limits the amount
of credit exposure to any one issuer. At the time of the Companys initial investment and at the
date of this report, all ARS were in compliance with the Companys investment policy. In the past,
the auction process allowed investors to obtain immediate liquidity if so desired by selling the
securities at their face amounts. Liquidity for these securities has historically been provided by
an auction process that resets interest rates on these investments on average every 7-35 days.
However, as has been reported in the financial press, the disruptions in the credit markets
adversely affected the auction market for these types of securities.

Beginning in February 2008, auctions failed for approximately $53.4 million in par value of
municipal ARS the Company held because sell orders exceeded buy orders. The funds associated with
failed auctions will not be accessible until the issuer calls the security, a successful auction
occurs, a buyer is found outside the auction process or the security otherwise matures.

The Company outsources the manufacturing of its pre-configured hardware platforms to contract
manufacturers, who assemble each product to the Companys specifications. As protection against
component shortages and to provide replacement parts for its service teams, the Company also stocks
limited supplies of certain key product components. The Company reduces inventory to net realizable
value based on excess and obsolete inventories determined primarily by historical usage and
forecasted demand. Inventories consist of hardware and related component parts and are recorded at
the lower of cost or market (as determined by the first-in, first-out method).

Inventories consist of the following (in thousands):

March 31,

September 30,

2011

2010

Finished goods

$

13,876

$

14,949

Raw materials

4,278

3,866

$

18,154

$

18,815

5. Commitments and Contingencies

Guarantees and Product Warranties

In the normal course of business to facilitate sales of its products, the Company indemnifies
other parties, including customers, resellers, lessors, and parties to other transactions with the
Company, with respect to certain matters. The Company has agreed to hold the other party harmless
against losses arising from a breach of representations or covenants, or out of intellectual
property infringement or other claims made against certain parties. These agreements may limit the
time within which an indemnification claim can be made and the amount of the claim. The Company has
entered into indemnification agreements with its officers and directors, and the Companys bylaws
contain similar indemnification obligations to the Companys agents. It is not possible to
determine the maximum potential amount under these indemnification agreements due to the limited
history of prior indemnification claims and the unique facts and circumstances involved in each
particular agreement.

The Company offers warranties of one year for hardware for those customers without service
contracts, with the option of purchasing additional warranty coverage in yearly increments. The
Company accrues for warranty costs as part of its cost of sales based on associated material
product costs and technical support labor costs. Accrued warranty costs as of March 31, 2011 and
March 31, 2010 were not material.

Purchase Commitments

The Company currently has arrangements with contract manufacturers and other suppliers for the
manufacturing of its products. The arrangement with the primary contract manufacturer allows them
to procure component inventory on the Companys behalf based on a rolling production forecast
provided by the Company. The Company is obligated to the purchase of component inventory that the
contract manufacturer procures in accordance with the forecast, unless they give notice of order
cancellation in advance of applicable lead times. As of March 31, 2011, the Company was committed
to purchase approximately $13.5 million of such inventory during the next quarter.

Legal Proceedings

Derivative Suits. Beginning on or about May 24, 2006, several derivative actions were filed
against certain of the Companys current and former directors and officers. These derivative
lawsuits were filed in: (1) the Superior Court of King County, Washington, as In re F5 Networks,
Inc. State Court Derivative Litigation (Case No. 06-2-17195-1 SEA), which consolidates Adams v.
Amdahl, et al. (Case No. 06-2-17195-1 SEA), Wright v. Amdahl, et al. (Case No. 06-2-19159-5 SEA),
and Sommer v. McAdam, et al. (Case No. 06-2-26248-4 SEA) (the State Court Derivative Litigation);
and (2) in the U.S. District Court for the Western District of Washington, as In re F5 Networks,
Inc. Derivative Litigation, Master File No. C06-0794RSL, which
consolidated Hutton v. McAdam, et
al. (Case No. 06-794RSL), Locals 302 and 612 of the International Union of Operating
Engineers-Employers Construction Industry Retirement Trust v. McAdam et al. (Case No. C06-1057RSL),
and Easton v. McAdam et al. (Case No. C06-1145RSL) (the Federal Court Derivative Litigation). On
August 2, 2007, another derivative lawsuit, Barone v. McAdam et al. (Case No. C07-1200P) was filed
in the U.S. District Court for the Western District of Washington. The Barone lawsuit was
designated a related case to the Federal Court Derivative Litigation on September 4, 2007.

On September 24, 2010, the Company entered into a Stipulation of Settlement (the
Stipulation) in connection with the Federal Court Derivative Litigation. On October 21, 2010, the United States District Court for the
Western District of Washington issued an order granting preliminary approval of the settlement
resolving the claims asserted by the plaintiffs against the individual defendants. On January 6,
2011 the Court entered a final order approving settlement of the Federal Court Derivative
Litigation. Effectiveness of the settlement of the Federal Court Derivative Litigation was
conditioned on dismissal of the State Court Derivative Litigation. On January 19, 2011, the
Superior Court of King County entered a final order dismissing the State Court Derivative
Litigation.

The Company is not aware of any additional pending legal proceedings that, individually or in
the aggregate, would have a material adverse effect on the Companys business, operating results,
or financial condition. The Company may in the future be party to litigation arising in the
ordinary course of business, including claims that we allegedly infringe upon third-party
intellectual property rights. Such claims, even if not meritorious, could result in the expenditure
of significant financial and managerial resources.

6. Income Taxes

The effective tax rate was 34.4% and 36.4% for the three months ended March 31, 2011 and 2010,
respectively. The decrease in effective tax rate was primarily due to an increased benefit
resulting from the United States Domestic Production Activities deduction.

At March 31, 2011, the Company has classified approximately $8.2 million of unrecognized tax
liabilities as a non-current liability. It is reasonably possible that the Companys existing
liabilities for uncertain tax benefits may change within the next twelve months primarily due to
the progression of audits in progress or the expiration of statutes of limitation. Due to the
nature of the various audits, the Company cannot reasonably estimate a range of potential changes
in such benefits.

The Company recognizes interest and, if applicable, penalties for any uncertain tax positions.
This interest and penalty expense will be a component of income tax expense. For the three and six
months ended March 31, 2011, the Company accrued an immaterial amount of interest expense related
to its liability for unrecognized tax benefits. All unrecognized tax benefits, if recognized, would
affect the effective tax rate.

The Company and its subsidiaries are subject to U.S. federal income tax as well as the income
tax of multiple state and foreign jurisdictions. Major jurisdictions where there are wholly owned
subsidiaries of F5 Networks, Inc. which require income tax filings include the United Kingdom,
Japan, Australia and Germany. The earliest periods open for review by local taxing authorities are
fiscal years 2008, 2010, 2007 and 2006 for the United Kingdom, Japan, Australia and Germany,
respectively. Within the next four fiscal quarters, the statute of limitations will begin to close
on the fiscal years ended 2006 and 2007 tax returns filed in various states and the fiscal year
ended 2007 federal income tax return.

7. Geographic Sales and Significant Customers

Operating segments are defined as components of an enterprise for which separate financial
information is available and evaluated regularly by the chief operating decision-maker, or
decision-making group, in deciding how to allocate resources and in assessing performance. The
Company does business in four main geographic regions: the Americas (primarily the United States);
Europe, the Middle East, and Africa (EMEA); Japan; and the Asia Pacific region (APAC). The
Companys chief operating decision-making group reviews financial information presented on a
consolidated basis accompanied by information about revenues by geographic region. The Companys
foreign offices conduct sales, marketing and support activities. Revenues are attributed by
geographic location based on the location of the customer. The Companys assets are primarily
located in the United States and not allocated to any specific region. Therefore, geographic
information is presented only for net revenue.

One worldwide distributor of the Companys products accounted for 19.6% and 19.2% of total net
revenue for the three and six month periods ended March 31, 2011, respectively. Two worldwide
distributors accounted for 25.0% and 24.6% of total net revenue for the three and six month periods
ended March 31, 2010, respectively. No other distributors accounted for more than 10% of total net
revenue.

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations contains
forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934
and Section 27A of the Securities Act of 1933. These statements include, but are not limited to,
statements about our plans, objectives, expectations, strategies, intentions or other
characterizations of future events or circumstances and are generally identified by the words
expects, anticipates, intends, plans, believes, seeks, estimates, and similar
expressions. These forward-looking statements are based on current information and expectations and
are subject to a number of risks and uncertainties. Our actual results could differ materially from
those expressed or implied by these forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed under Item 1A.
Risk Factors herein and in other documents we file from time to time with the Securities and
Exchange Commission. We assume no obligation to revise or update any such forward-looking
statements.

Overview

We are a global provider of appliances consisting of software and hardware and services that
help companies efficiently and securely manage the delivery, optimization and security of
application and data traffic on Internet-based networks, and to optimize the performance and
utilization of data storage infrastructure and other network resources. We market and sell our
products primarily through multiple indirect sales channels in the Americas (primarily the United
States); Europe, the Middle East, and Africa (EMEA); Japan; and the Asia Pacific region (APAC).
Enterprise customers (Fortune 1000 or Business Week Global 1000 companies) in the technology,
telecommunications, financial services, transportation, education, manufacturing and health care
industries, along with government customers, continue to make up the largest percentage of our
customer base.

Our management team monitors and analyzes a number of key performance indicators in order to
manage our business and evaluate our financial and operating performance on a consolidated basis.
Those indicators include:

Cost of revenues and gross margins. We strive to control our cost of revenues and thereby
maintain our gross margins. Significant items impacting cost of revenues are hardware costs
paid to our contract manufacturers, third-party software license fees, amortization of
developed technology and personnel and overhead expenses. Our margins have remained relatively
stable; however, factors such as sales price, product mix, inventory obsolescence, returns,
component price increases and warranty costs could significantly impact our gross margins from
quarter to quarter and represent significant indicators we monitor on a regular basis.



Operating expenses. Operating expenses are substantially driven by personnel and related
overhead expenses. Existing headcount and future hiring plans are the predominant factors in
analyzing and forecasting future operating expense trends. Other significant operating
expenses that we monitor include marketing and promotions, travel, professional fees, computer
costs related to the development of new products, facilities and depreciation expenses.

Liquidity and cash flows. Our financial condition remains strong with significant cash and
investments and no long term debt. The increase in cash and investments for the first six
months of fiscal year 2011 was primarily due to net income from operations, with operating
activities providing cash of $194.4 million. This increase was partially offset by $71.5
million of cash used to repurchase outstanding common stock under our stock repurchase program
in the first half of fiscal year 2011. Going forward, we believe the primary driver of cash
flows will be net income from operations. Capital expenditures for the first six months of
fiscal year 2011 were comprised primarily of information technology infrastructure and
equipment to support the growth of our core business activities. We will continue to evaluate
possible acquisitions of, or investments in businesses, products, or technologies that we
believe are strategic, which may require the use of cash.



Balance sheet. We view cash, short-term and long-term investments, deferred revenue, accounts
receivable balances and days sales outstanding as important indicators of our financial
health. Deferred revenues continued to increase in the second quarter of fiscal year 2011 due
to growth in the amount of annual maintenance contracts purchased on new products and
maintenance renewal contracts related to our existing product installation base. Our days
sales outstanding for the second quarter of fiscal year 2011 was 46.

Summary of Critical Accounting Policies and Estimates

The preparation of our financial condition and results of operations requires us to make
judgments and estimates that may have a significant impact upon our financial results. We believe
that, of our significant accounting policies, the following require estimates and assumptions that
require complex, subjective judgments by management, which can materially impact reported results:
revenue recognition; reserve for doubtful accounts; reserve for product returns; reserve for
warranties; accounting for income taxes; stock-based compensation; investments; goodwill
impairment; and the fair value measurements of financial assets and liabilities. None of these
accounting policies and estimates with the exception of the revenue recognition policy discussed
below, have significantly changed since our annual report on Form 10-K for the year ended September
30, 2010 (Form 10-K). Critical accounting policies and estimates are more fully described in
Managements Discussion and Analysis of Financial Condition and Results of Operations in the Form
10-K. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policy, as well as those discussed in our Form
10-K, affect the more significant estimates and judgments used in the preparation of our financial
statements.

Revenue Recognition

We sell products through distributors, resellers, and directly to end users. Revenue is
recognized provided that all of the following criteria have been met:

Persuasive evidence of an arrangement exists. Evidence of an arrangement generally consists of
a purchase order issued pursuant to the terms and conditions of a distributor, reseller or end user
agreement.

Delivery has occurred. We use shipping or related documents, or written evidence of customer
acceptance, when applicable, to verify delivery or completion of any performance terms.

The sales price is fixed or determinable. We assess whether the sales price is fixed or
determinable based on payment terms associated with the transaction and whether the sales price is
subject to refund or adjustment.

Collectability is reasonable assured. We assess collectability primarily based on the
creditworthiness of the customer as determined by credit checks and related analysis, as well as
the Customers payment history.

In certain regions where we do not have the ability to reasonably estimate returns, we defer
revenue on sales to our distributors until they have received information from the channel partner
indicating that the product has been sold to the end-user customer. Payment terms to domestic
customers are generally net 30 days to net 45 days. Payment terms to international customers range
from net 30 days to net 120 days based on normal and customary trade practices in the individual
markets. We offer extended payment terms to certain customers, in which case, revenue is recognized
when payments are due.

Whenever product, training services and post-contract customer support (PCS) elements are
sold together, a portion of the sales price is allocated to each element based on their respective
fair values as determined when the individual elements are sold separately. Revenue from the sale
of products is recognized when the product has been shipped and the customer is obligated to pay
for the

product. When rights of return are present and we cannot estimate returns, we recognize
revenue when such rights of return lapse. Revenues for PCS are recognized on a straight-line basis
over the service contract term. PCS includes a limited period of telephone support updates, repair
or replacement of any failed product or component that fails during the term of the agreement, bug
fixes and rights to upgrades, when and if available. Consulting services are customarily billed at
fixed hourly rates, plus out-of-pocket expenses, and revenues are recognized when the consulting
has been completed. Training revenue is recognized when the training has been completed.

In October 2009, the Financial Accounting Standards Board (FASB) amended the accounting
standards for revenue recognition to remove from the scope of industry-specific software revenue
recognition guidance any tangible products containing software components and non-software
components that operate together to deliver the products essential functionality. In addition, the
FASB amended the accounting standards for certain multiple element revenue arrangements to:



Provide updated guidance on whether multiple elements exist, how the elements in an
arrangement should be separated, and how the arrangement consideration should be
allocated to the separate elements;



Require an entity to allocate arrangement consideration to each element based on a
selling price hierarchy, where the selling price for an element is based on
vendor-specific objective evidence (VSOE), if available, third-party evidence (TPE),
if available and VSOE is not available; or the best estimate of selling price (BESP),
if neither VSOE or TPE is available; and



Eliminate the use of the residual method and require an entity to allocate
arrangement consideration using the selling price hierarchy.

We adopted this guidance in the first quarter of fiscal year 2011 on a prospective basis for
applicable arrangements originating or materially modified after October 1, 2010. The impact of
this adoption was not material to our financial position and results of operations for the three
and six months ended March 31, 2011.

The majority of our products are hardware appliances which contain software essential to the
overall functionality of the products. Accordingly, we no longer recognize revenue on sales of
these products in accordance with the industry-specific software revenue recognition guidance.

For all transactions entered into prior to the first quarter of fiscal year 2011 and for sales
of nonessential and stand-alone software after October 1, 2010, we allocate revenue for
arrangements with multiple elements based on the software revenue recognition guidance. Software
revenue recognition guidance requires revenue earned on software arrangements involving multiple
elements to be allocated to each element based on the relative fair values of those elements. The
fair value of an element must be based on VSOE. Where fair value of certain elements is not
available, revenue is recognized on the residual method based on the fair value of undelivered
elements. If evidence of the fair value of one or more undelivered elements does not exist, all
revenue is deferred and recognized at the earlier of the delivery of those elements or the
establishment of fair value of the remaining undelivered elements.

For transactions entered into subsequent to the adoption of the amended revenue recognition
standards that are multiple-element arrangements, the arrangement consideration is allocated to
each element based on the relative selling prices of all of the elements in the arrangement using
the fair value hierarchy in the amended revenue recognition guidance.

Consistent with the methodology used under the previous accounting guidance, we establish VSOE
for our products, training services, PCS and consulting services based on the sales price charged
for each element when sold separately. The sales price is discounted from the applicable list price
based on various factors including the type of customer, volume of sales, geographic region and
program level. Our list prices are generally not fair value as discounts may be given based on the
factors enumerated above. We believe that the fair value of our consulting services is represented
by the billable consulting rate per hour, based on the rates we charge customers when they purchase
standalone consulting services. The price of consulting services is not based on the type of
customer, volume of sales, geographic region or program level.

We use historical sales transactions to determine whether VSOE can be established for each of
the elements. In most instances, VSOE of fair value is the sales price of actual standalone
(unbundled) transactions within the past 12 month period that are priced within a reasonable range,
which we have determined to be plus or minus 15% of the median sales price of each respective price
list.

VSOE of PCS is based on standalone sales since we do not provide stated renewal rates to our
customers. In accordance with our PCS pricing practice (supported by standalone renewal sales),
renewal contracts are priced as a percentage of the undiscounted product list price. The PCS
renewal percentages may vary, depending on the type and length of PCS purchased. We offer standard
and premium PCS, and the term generally ranges from one to three years. We employ a
bell-shaped-curve approach in evaluating VSOE of fair value of PCS. Under this approach, we
consider VSOE of the fair value of PCS to exist when a substantial majority of our standalone PCS
sales fall within a narrow range of pricing.

We are typically not able to determine TPE for our products or services. TPE is determined
based on competitor prices for similar elements when sold separately. Generally, our go-to-market
strategy differs from that of other competitive products or services in our markets and our
offerings contain a significant level of differentiation such that the comparable pricing of
products with similar functionality cannot be obtained. Furthermore, we are unable to reliably
determine the selling prices on a stand-alone basis of similar products offered by our competitors.

When we are unable to establish selling price of our non-software elements using VSOE or TPE,
we use BESP in our allocation of arrangement consideration. The objective of BESP is to determine
the price at which we would transact a sale if the product or service were sold on a stand-alone
basis. We determine BESP for a product or service by considering multiple factors including, but
not limited to, cost of products, gross margin objectives, pricing practices, geographies, customer
classes and distribution channels.

We have established and regularly validate the VSOE of fair value and BESP for elements in our
multiple element arrangements. We account for taxes collected from customers and remitted to
governmental authorities on a net basis and excluded from revenues.

Results of Operations

The following discussion and analysis should be read in conjunction with our consolidated
financial statements, related notes and risk factors included elsewhere in this Quarterly Report on
Form 10-Q.

Three months ended

Six months ended

March 31,

March 31,

2011

2010

2011

2010

(in thousands, except percentages)

Net Revenues

Products

$

173,710

$

129,559

$

345,202

$

248,777

Services

103,862

76,509

201,304

148,447

Total

$

277,572

$

206,068

$

546,506

$

397,224

Percentage of net revenues

Products

62.6

%

62.9

%

63.2

%

62.6

%

Services

37.4

37.1

36.8

37.4

Total

100.0

%

100.0

%

100.0

%

100.0

%

Net revenues. Total net revenues increased 34.7% and 37.6% for the three and six months ended
March 31, 2011, respectively, from the same periods in the prior year. Overall revenue growth for
the three and six months ended March 31, 2011 was primarily due to increased service and product
revenues as a result of our increased installed base of products and increased demand for our core
ADN products, including application security and WAN optimization products. International revenues
were 41.0% and 41.1% of total net revenues for the three and six months ended March 31, 2011,
respectively, compared to 42.5% and 42.2% for the same periods in the prior year, respectively. We
expect international sales will continue to represent a significant portion of net revenues,
although we cannot provide assurance that international revenues as a percentage of net revenues
will remain at current levels.

Net product revenues increased 34.1% and 38.8% for the three and six months ended March 31,
2011, respectively, from the same periods in the prior year. The increase in net product revenues
for the three and six months ended March 31, 2011 was primarily due to an increase of $42.2 million
and $93.6 million in sales of our ADN products from the same periods in the prior year,
respectively. Sales of our ADN products represented 97.5% and 97.4% of product revenues for the
three and six months ended March 31, 2011, respectively, compared to 98.2% and 97.5% of product
revenues for the three and six months ended March 31, 2010, respectively. We are now including our
FirePass SSL VPN product as a component of ADN revenue.

Net service revenues increased 35.8% and 35.6% for the three and six months ended March 31,
2011, respectively, from the same periods in the prior year. The increase in net service revenues
was primarily due to increases in the purchase or renewal of maintenance contracts driven by
additions to our installed base of products.

Avnet Technology Solutions, one of our worldwide distributors, accounted for 19.6% and 19.2%
of our total net revenue for the three and six months ended March 31, 2011, respectively. Avnet
Technology Solutions and Tech Data, two of our worldwide distributors, accounted for 13.8% and
11.2% of our total net revenue for the three months ended March 31, 2010, respectively. Avnet
Technology Solutions and Tech Data accounted for 12.8% and 11.8% of our total net revenue for the
six months ended March 31, 2010, respectively. Avnet Technology Solutions accounted for 14.5% of
our accounts receivable as of March 31, 2011. Avnet Technology Solutions accounted for 10.0% of our
accounts receivable as of March 31, 2010. No other distributors accounted for more than 10% of
total net revenue or receivables.

Cost of net product revenues. Cost of net product revenues consist of finished products
purchased from our contract manufacturers, manufacturing overhead, freight, warranty, provisions
for excess and obsolete inventory and amortization expenses in connection with developed technology
from acquisitions. Cost of net product revenues increased 14.6% and 17.9% for the three and six
months ended March 31, 2011, respectively, as compared to the same periods in the prior year. The
increase in cost of net product revenues was primarily due to a higher volume of units shipped
along with an increase in warranty expense.

Cost of net service revenues. Cost of net service revenues consist of the salaries and related
benefits of our professional services staff, travel, facilities and depreciation expenses. For the
three and six months ended March 31, 2011, cost of net service revenues as a percentage of net
service revenues remained relatively consistent with the same periods in the prior year at 18.5%
and 18.2%, respectively. Professional services headcount at the end of March 2011 increased to 476
from 384 at the end of March 2010. In addition, cost of net service revenues included stock-based
compensation expense of $1.8 million and $3.6 million for the three and six months ended March 31,
2011, respectively, compared to $1.4 million and $2.9 million for the same periods in the prior
year, respectively.

Three months ended

Six months ended

March 31,

March 31,

2011

2010

2011

2010

(in thousands, except percentages)

Operating expenses

Sales and marketing

$

89,332

$

69,644

$

176,157

$

135,286

Research and development

34,507

29,134

67,113

55,854

General and administrative

19,846

16,016

40,530

31,969

Total

$

143,685

$

114,794

$

283,800

$

223,109

Operating expenses (as a percentage of net revenue)

Sales and marketing

32.2

%

33.8

%

32.2

%

34.1

%

Research and development

12.4

14.1

12.3

14.1

General and administrative

7.2

7.8

7.4

8.0

Total

51.8

%

55.7

%

51.9

%

56.2

%

Sales and marketing. Sales and marketing expenses consist of salaries, commissions and related
benefits of our sales and marketing staff, the costs of our marketing programs, including public
relations, advertising and trade shows, travel, facilities, and depreciation expenses. Sales and
marketing expenses increased 28.3% and 30.2% for the three and six months ended March 31, 2011,
respectively, from the comparable periods in the prior year. The increase in sales and marketing
expense was primarily due to an increase of $12.7 million and $24.1 million in commissions and
personnel costs for the three and six months ended March 31, 2011,

respectively, from the comparable periods in the prior year. The increased commissions and
personnel costs were driven by growth in sales and marketing employee headcount and increased sales
volume for the corresponding period. Sales and marketing headcount at the end of March 2011
increased to 979 from 757 at the end of March 2010. Sales and marketing expense included
stock-based compensation expense of $8.4 million and $17.1 million for the three and six months
ended March 31, 2011, respectively, compared to $6.4 million and $13.1 million for the same periods
in the prior year, respectively. The increase in sales and marketing expense was also due to
investments in marketing promotions and initiatives aimed at promoting our brand and creating
market awareness of our technology and our products.

Research and development. Research and development expenses consist of the salaries and
related benefits for our product development personnel, prototype materials and other expenses
related to the development of new and improved products, facilities and depreciation expenses.
Research and development expenses increased 18.4% and 20.2% for the three and six months ended
March 31, 2011, respectively, from the comparable periods in the prior year. The increase in
research and development expense was primarily due to an increase of $3.3 million and $6.2 million
in personnel costs for the three and six months ended March 31, 2011, respectively, from the
comparable periods in the prior year. In addition, research and development expense included year
over year increases in computer equipment and software costs of $1.3 million and $2.5 million for
the three and six months ended March 31, 2011, respectively, to support the development of new and
improved products. Research and development headcount at the end of March 2011 increased to 554
from 471 at the end of March 2010. Research and development expense included stock-based
compensation expense of $5.6 million and $11.5 million for the three and six months ended March 31,
2011, respectively, compared to $4.6 million and $9.4 million for the same periods in the prior
year, respectively. We expect research and development expenses to remain consistent as a
percentage of net revenue in the foreseeable future.

General and administrative. General and administrative expenses consist of the salaries,
benefits and related costs of our executive, finance, information technology, human resource and
legal personnel, third-party professional service fees, bad debt charges, facilities and
depreciation expenses. General and administrative expenses increased 23.9% and 26.8% for the three
and six months ended March 31, 2011, respectively, from the comparable periods in the prior year.
The increase in general and administrative expense was primarily due to an increase of $1.3 million
and $2.8 million in personnel costs for the three and six months ended March 31, 2011,
respectively, from the comparable periods in the prior year. In addition, fees paid to outside
consultants for legal and information technology services increased $1.0 million and $2.0 million
for the three and six months ended March 31, 2011, respectively, from the comparable periods in the
prior year. Stock-based compensation expense was $5.7 million and $11.7 million for the three and
six months ended March 31, 2011, respectively, compared to $3.9 million and $7.8 million for the
same periods in the prior year, respectively. General and administrative headcount at the end of March 2011
increased to 245 from 211 at the end of March 2010.

Three months ended

Six months ended

March 31,

March 31,

2011

2010

2011

2010

(in thousands, except percentages)

Other income and income taxes

Income from operations

$

83,214

$

49,858

$

163,070

$

93,570

Other income, net

1,568

2,291

4,113

3,996

Income before income taxes

84,782

52,149

167,183

97,566

Provision for income taxes

29,207

19,005

55,945

35,143

Net income

$

55,575

$

33,144

$

111,238

$

62,423

Other income and income taxes (as percentage of net revenue)

Income from operations

30.0

%

24.2

%

29.8

%

23.6

%

Other income, net

0.5

1.1

0.8

1.0

Income before income taxes

30.5

25.3

30.6

24.6

Provision for income taxes

10.5

9.2

10.2

8.9

Net income

20.0

%

16.1

%

20.4

%

15.7

%

Other income, net. Other income, net, consists of interest income and foreign currency
transaction gains and losses. Other income, net, decreased 31.6% for the three months ended March
31, 2011, compared to the same period in the prior year. Other income, net, increased 2.9% for the
six months ended March 31, 2011, compared to the same period in the prior year. The decrease in
other income, net for the three months ended March 31, 2011 was primarily due to a decrease in
foreign currency transaction gains, as well as interest income compared to the same period in the
prior year. The decrease in interest income for the three months ended March 31, 2011 was primarily
due to a decline in interest rates from the prior year.

Provision for income taxes. We recorded a 34.4% provision for income taxes for the three month
period ended March 31, 2011. The reduction in effective tax rate compared to the three month period
ended March 31, 2010 was primarily due to an increase in the benefit received from the domestic
manufacturing deduction. At March 31, 2011, we did not have a valuation allowance on any of our

deferred tax assets in any of the jurisdictions in which we operate because we believe that
these assets are more likely than not to be realized. In making this determination we have
considered projected future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the appropriateness of a valuation allowance. Our net deferred tax assets at March 31,
2011 and March 31, 2010 were $48.4 million and $50.4 million, respectively. Our worldwide effective
tax rate may fluctuate based on a number of factors including variations in projected taxable
income in the various geographic locations in which we operate, changes in the valuation of our net
deferred tax assets, resolution of potential exposures, tax positions taken on tax returns filed in
the various geographic locations in which we operate, and the introduction of new accounting
standards or changes in tax laws or interpretations thereof in the various geographic locations in
which we operate. We have recorded liabilities to address potential tax exposures related to
business and income tax positions we have taken that could be challenged by taxing authorities. The
ultimate resolution of these potential exposures may be greater or less than the liabilities
recorded which could result in an adjustment to our future tax expense.

Liquidity and Capital Resources

Cash and cash equivalents, short-term investments and long-term investments totaled $997.2
million as of March 31, 2011 compared to $862.1 million as of September 30, 2010, representing an
increase of $135.1 million. The increase was primarily due to cash provided by operating activities
of $194.4 million for the six months ended March 31, 2011 which was partially offset by $71.5
million of additional cash required for the repurchase of outstanding common stock under our stock
repurchase program. The increase in cash flow from operations for the first six months of fiscal
year 2011 resulted from increased net income combined with changes in operating assets and
liabilities, as adjusted for various non-cash items including stock-based compensation,
depreciation and amortization charges. Based on our current operating and capital expenditure
forecasts, we believe that our existing cash and investment balances, excluding auction rate
securities (ARS), together with cash generated from operations should be sufficient to meet our
operating requirements for at least the next twelve months.

At March 31, 2011, we held $16.4 million in fair value of tax-exempt ARS, which are
variable-rate debt securities and have a long-term maturity with the interest rates being reset
through Dutch auctions that are typically held every 7, 28 or 35 days. The securities have
historically traded at par and are callable at par at the option of the issuer. Interest is
typically paid at the end of each auction period or semi-annually. We limit our investments in ARS
to securities that carry a AAA/A- (or equivalent) rating from recognized rating agencies and limit
the amount of credit exposure to any one issuer. At the time of initial investment and at the date
of this Quarterly Report on Form 10-Q, all of our ARS were in compliance with our investment
policy.

Beginning in February 2008, auctions failed for approximately $53.4 million in par value of
municipal ARS we held because sell orders exceeded buy orders. When these auctions failed to clear,
higher interest rates for those securities went into effect. However, the funds associated with
these failed auctions will not be accessible until the issuer calls the security, a successful
auction occurs, a buyer is found outside of the auction process or the security matures.

We have no reason to believe that any of the underlying issuers of our ARS are presently at
risk of default. The underlying assets of the municipal ARS we hold, including the securities for
which auctions have failed, are generally student loans which are guaranteed by the U.S.
government. Through March 31, 2011, we have continued to receive interest payments on the ARS in
accordance with their terms. We believe we will be able to liquidate our investments without
significant loss primarily due to the government guarantee of the underlying securities. However,
due to uncertainty in the ARS market, we believe certain of these available-for-sale investments
may remain illiquid for longer than twelve months and as a result, we have classified $19.0 million
(par value) of our ARS as long-term as of March 31, 2011.

Cash used in investing activities was $110.7 million for the six months ended March 31, 2011,
compared to cash used in investing activities of $107.7 million for the same period in the prior
year. Investing activities include purchases, sales and maturities of available-for-sale
securities, capital expenditures and changes in restricted cash requirements. The amount of cash
used in investing activities for the six months ended March 31, 2011 was primarily due to the
purchase of investments and capital expenditures related to maintaining our operations worldwide
partially offset by the sales and maturity of investments.

Cash used in financing activities was $46.0 million for the six months ended March 31, 2011,
compared to cash used in financing activities of $6.2 million for the same period in the prior
year. Our financing activities for the six months ended March 31, 2011 consisted of cash required
for the repurchase of outstanding common stock under our stock repurchase program of $71.5 million,
partially offset by cash received from the exercise of employee stock options and stock purchases
under our employee stock purchase plan of $9.2 million and excess tax benefits related to
share-based compensation of $16.3 million.

As of March 31, 2011, our principal commitments consisted of obligations outstanding
under operating leases. We lease our facilities under operating leases that expire at various dates
through 2022. There have been no material changes in our principal lease commitments compared to
those discussed in the Form 10-K.

We outsource the manufacturing of our pre-configured hardware platforms to contract
manufacturers who assemble each product to our specifications. Our agreement with our largest
contract manufacturer allows them to procure component inventory on our behalf based upon a rolling
production forecast. We are contractually obligated to purchase the component inventory in
accordance with the forecast, unless we give notice of order cancellation in advance of applicable
lead times. As of March 31, 2011, we were committed to purchase approximately $13.5 million of such
inventory during the next quarter.

Recent Accounting Pronouncements

The anticipated impact of recent accounting pronouncements is discussed in Note 1 to the
accompanying Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Risk Factors that May Affect Future Results

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and
uncertainties. Our business, operating results, financial performance and share price may be
materially adversely affected by a number of factors, including but not limited to the following
risk factors, any one of which could cause actual results to vary materially from anticipated
results or from those expressed in any forward-looking statements made by us in this Quarterly
Report on Form 10-Q or in other reports, press releases or other statements issued from time to
time. Additional factors that may cause such a difference are set forth elsewhere in this Quarterly
Report on Form 10-Q.

Our quarterly and annual operating results may fluctuate in future periods, which may cause our
stock price to fluctuate

Our quarterly and annual operating results have varied significantly in the past and could
vary significantly in the future, which makes it difficult for us to predict our future operating
results. Our operating results may fluctuate due to a variety of factors, many of which are outside
of our control, including the changing and recently volatile U.S. and global economic environment,
and any of which may cause our stock price to fluctuate. In particular, we anticipate that the size
of customer orders may increase as we continue to focus on larger business accounts. A delay in the
recognition of revenue, even from just one account, may have a significant negative impact on our
results of operations for a given period. In the past, a majority of our sales have been realized
near the end of a quarter. Accordingly, a delay in an anticipated sale past the end of a particular
quarter may negatively impact our results of operations for that quarter, or in some cases, that
fiscal year. Additionally, we have exposure to the credit risks of some of our customers and
sub-tenants. Although we have programs in place that are designed to monitor and mitigate the
associated risk, there can be no assurance that such programs will be effective in reducing our
credit risks adequately. We monitor individual payment capability in granting credit arrangements,
seek to limit the total credit to amounts we believe our customers can pay and maintain reserves we
believe are adequate to cover exposure for potential losses. If there is a deterioration of a
sub-tenants or a major customers creditworthiness or actual defaults are higher than expected,
future losses, if incurred, could harm our business and have a material adverse effect on our
operating results. Further, our operating results may be below the expectations of securities
analysts and investors in future quarters or years. Our failure to meet these expectations will
likely harm the market price of our common stock. Such a decline could occur, and has occurred in
the past, even when we have met our publicly stated revenue and/or earnings guidance.

In addition to other risks listed in this Risk Factors section, factors that may affect our
operating results include, but are not limited to:



fluctuations in demand for our products and services due to changing market conditions,
pricing conditions, technology evolution, seasonality, or other changes in the global
economic environment;



changes or fluctuations in sales and implementation cycles for our products and services;

fluctuations in our gross margins, including the factors described herein which may
contribute to such fluctuations;



our ability to control costs, including operating expenses, the costs of hardware and
software components, and other manufacturing costs;



our ability to develop, introduce and gain market acceptance of new products,
technologies and services, and our success in new and evolving markets;



any significant changes in the competitive environment, including the entry of new
competitors or the substantial discounting of products or services;



the timing and execution of product transitions or new product introductions, and related
inventory costs;



variations in sales channels, product costs, or mix of products sold;



our ability to establish and manage our distribution channels, and the effectiveness of
any changes we make to our distribution model;



the ability of our contract manufacturers and suppliers to provide component parts,
hardware platforms and other products in a timely manner;



benefits anticipated from our investments in sales, marketing, product development,
manufacturing or other activities; and



changes in tax laws or regulations, or other accounting rules.

Our success depends on our timely development of new products and features, market acceptance of
new product offerings and proper management of the timing of the life cycle of our products

The application delivery networking and file virtualization markets are characterized by rapid
technological change, frequent new product introductions, changes in customer requirements and
evolving industry standards. Our continued success depends on our ability to identify and develop
new products and new features for our existing products to meet the demands of these changes, and
the acceptance of those products and features by our existing and target customers. If we are
unable to identify, develop and deploy new products and new product features on a timely basis, our
business and results of operations may be harmed.

The current development cycle for our products is on average 12-24 months. The introduction of
new products or product enhancements may shorten the life cycle of our existing products, or
replace sales of some of our current products, thereby offsetting the benefit of even a successful
product introduction, and may cause customers to defer purchasing our existing products in
anticipation of the new products. This could harm our operating results by decreasing sales,
increasing our inventory levels of older products and exposing us to greater risk of product
obsolescence. We have also experienced, and may in the future experience, delays in developing and
releasing new products and product enhancements. This has led to, and may in the future lead to,
delayed sales, increased expenses and lower quarterly revenue than anticipated. Also, in the
development of our products, we have experienced delays in the prototyping of our products, which
in turn has led to delays in product introductions. In addition, complexity and difficulties in
managing product transitions at the end-of-life stage of a product can create excess inventory of
components associated with the outgoing product that can lead to increased expenses. Any or all of
the above problems could materially harm our business and results of operations.

For the fiscal year ended September 30, 2010 and the six months ended March 31, 2011, we
derived approximately 97.2% and 97.4% of our net product revenues, respectively, or approximately
61.8% and 61.5% of our total net revenues, respectively, from sales of our Application Delivery
Networking (ADN) product lines. We expect to continue to derive a significant portion of our net
revenues from sales of our ADN products in the future. Implementation of our strategy depends upon
these products being able to solve critical network availability and performance problems for our
customers. If our ADN products are unable to solve these problems for our customers or if we are
unable to sustain the high levels of innovation in our ADN product feature set needed to maintain
leadership in what will continue to be a competitive market environment, our business and results
of operations will be harmed.

We may not be able to compete effectively in the emerging application delivery networking and file
virtualization markets

The markets we serve are new, rapidly evolving and highly competitive, and we expect
competition to persist and intensify in the future. Our principal competitors in the application
delivery networking market include Cisco Systems, Inc., Citrix Systems, Inc., Brocade
Communications Systems, Inc. and Radware Ltd. In the adjacent WAN Optimization Controller market,
we compete with Riverbed Technology, Inc., Juniper Networks, Inc., Blue Coat Systems, Inc., Cisco
and Citrix. In the file virtualization market, we compete with EMC Corporation. We expect to
continue to face additional competition as new participants enter our markets. As we continue to
expand globally, we may see new competitors in different geographic regions. In addition, larger
companies with significant resources, brand recognition, and sales channels may form alliances with
or acquire competing application delivery networking solutions from other companies and emerge as
significant competitors. Potential competitors may bundle their products or incorporate an Internet
traffic management or security component into existing products in a manner that discourages users
from purchasing our products. Any of these circumstances may limit our opportunities for growth and
negatively impact our financial performance.

The average selling price of our products may decrease and our costs may increase, which may
negatively impact gross profits

It is possible that the average selling prices of our products will decrease in the future in
response to competitive pricing pressures, increased sales discounts, new product introductions by
us or our competitors or other factors. Therefore, in order to maintain our gross profits, we must
develop and introduce new products and product enhancements on a timely basis and continually
reduce our product costs. Our failure to do so will cause our net revenue and gross profits to
decline, which will harm our business and results of operations. In addition, we may experience
substantial period-to-period fluctuations in future operating results due to the erosion of our
average selling prices.

It is difficult to predict our future operating results because we have an unpredictable sales
cycle

Our products have a lengthy sales cycle and the timing of our revenue is difficult to predict.
Historically, our sales cycle has ranged from approximately two to three months and has tended to
lengthen as we have increasingly focused our sales efforts on the enterprise market. Also, as our
distribution strategy has evolved into more of a channel model, utilizing value-added resellers,
distributors and systems integrators, the level of variability in the length of sales cycle across
transactions has increased and made it more difficult to predict the timing of many of our sales
transactions. Sales of our products require us to educate potential customers in their use and
benefits. Sales of our products are subject to delays from the lengthy internal budgeting, approval
and competitive evaluation processes that large corporations and governmental entities may require.
For example, customers frequently begin by evaluating our products on a limited basis and devote
time and resources to testing our products before they decide whether or not to purchase. Customers
may also defer orders as a result of anticipated releases of new products or enhancements by our
competitors or us. As a result, our products have an unpredictable sales cycle that contributes to
the uncertainty of our future operating results.

Our business may be harmed if our contract manufacturers are not able to provide us with adequate
supplies of our products or if a single source of hardware assembly is lost or impaired

We outsource the manufacturing of our hardware platforms to third party contract manufacturers
who assemble these hardware platforms to our specifications. We have experienced minor delays in
shipments from contract manufacturers in the past. However, if we experience major delays in the
future or other problems, such as inferior quality and insufficient quantity of product, any one or
a combination of these factors may harm our business and results of operations. The inability of
our contract manufacturers to provide us with adequate supplies of our products or the loss of one
or more of our contract manufacturers may cause a delay in our ability to fulfill orders while we
obtain a replacement manufacturer and may harm our business and results of operations. In
particular, we currently subcontract manufacturing of our application delivery networking products
to a single contract manufacturer with whom we do not have a long-term contract. If our arrangement
with this single source of hardware assembly was terminated or otherwise impaired, and we were not
able to engage another contract manufacturer in a timely manner, our business, financial condition
and results of operation could be adversely affected.

If the demand for our products grows, we will need to increase our raw material and component
purchases, contract manufacturing capacity and internal test and quality control functions. Any
disruptions in product flow may limit our revenue, may harm our competitive position and may result
in additional costs or cancellation of orders by our customers.

Our business could suffer if there are any interruptions or delays in the supply of hardware
components from our third-party sources

We currently purchase several hardware components used in the assembly of our products from a
number of single or limited sources. Lead times for these components vary significantly. The
unavailability of suitable components, any interruption or delay in the supply of any of these
hardware components or the inability to procure a similar component from alternate sources at
acceptable prices within a reasonable time, may delay assembly and sales of our products and,
hence, our revenues, and may harm our business and results of operations.

We are subject to governmental export and import controls that could subject us to liability or
impair our ability to compete in international markets

Our products are subject to U.S. export controls and may be exported outside the U.S. only
with the required level of export license or through an export license exception because we
incorporate encryption technology into our products. In addition, various countries regulate the
import of certain encryption technology and have enacted laws that could limit our ability to
distribute our products or our customers ability to implement our products in those countries.
Changes in our products or changes in export and import regulations may create delays in the
introduction of our products in international markets, prevent our customers with international
operations from deploying our products throughout their global systems or, in some cases, prevent
the export or import of our products to certain countries altogether. Any change in export or
import regulations or related legislation, shift in approach to the enforcement or scope of
existing regulations or change in the countries, persons or technologies targeted by such
regulations, could result in decreased use of our products by, or in our decreased ability to
export or sell our products to, existing or potential customers with international operations. For
example, we will need to comply with Waste Electrical and Electronic Equipment Directive laws,
which are being adopted by certain European Economic Area countries on a country-by-country basis.
Failure to comply with these and similar laws on a timely basis, or at all, could have a material
adverse effect on our business, operating results and financial condition. Any decreased use of our
products or limitation on our ability to export or sell our products would likely adversely affect
our business, operating results and financial condition.

We may not be able to adequately protect our intellectual property and our products may infringe
on the intellectual property rights of third parties

We rely on a combination of patent, copyright, trademark and trade secret laws, and
restrictions on disclosure of confidential and proprietary information to protect our intellectual
property rights. Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use our products or technology. Monitoring unauthorized use
of our products is difficult, and we cannot be certain that the steps we have taken will prevent
misappropriation of our technology, particularly in foreign countries where the laws may not
protect our proprietary rights as fully as in the United States.

Our industry is characterized by the existence of a large number of patents and frequent
claims and related litigation regarding patent and other intellectual property rights. In the
ordinary course of our business, we are involved in disputes and licensing discussions with others
regarding their claimed proprietary rights and cannot assure you that we will always successfully
defend ourselves against such claims. We expect that infringement claims may increase as the number
of products and competitors in our market increases and overlaps occur. Also, as we have gained
greater visibility, market exposure and competitive success, we face a higher risk of being the
subject of intellectual property infringement claims. If we are found to infringe the proprietary
rights of others, or if we otherwise settle such claims, we could be compelled to pay damages or
royalties and either obtain a license to those intellectual property rights or alter our products
so that they no longer infringe upon such proprietary rights. Any license could be very expensive
to obtain or may not be available at all. Similarly, changing our products or processes to avoid
infringing upon the rights of others may be costly or impractical. In addition, we have initiated,
and may in the future initiate, claims or litigation against third parties for infringement of our
proprietary rights, or to determine the scope and validity of our proprietary rights or those of
our competitors. Any of these claims, whether claims that we are infringing the proprietary rights
of others, or vice versa, with or without merit, may be time-consuming, result in costly litigation
and diversion of technical and management personnel or require us to cease using infringing
technology, develop non-infringing technology or enter into royalty or licensing agreements.
Further, our license agreements typically require us to indemnify our customers, distributors and
resellers for infringement actions related to our technology, which could cause us to become
involved in infringement claims made against our customers, distributors or resellers. Any of the
above-described circumstances relating to intellectual property rights disputes could result in our
business and results of operations being harmed.

Many of our products include intellectual property licensed from third parties. In the future,
it may be necessary to renew licenses for third party intellectual property or obtain new licenses
for other technology. These third party licenses may not be available to us on acceptable terms, if
at all. The inability to obtain certain licenses, or litigation regarding the interpretation or
enforcement of license rights and related intellectual property issues, could have a material
adverse effect on our business, operating results and financial

condition. Furthermore, we license
some third party intellectual property on a non-exclusive basis and this may limit our ability to
protect our intellectual property rights in our products.

We may not be able to sustain or develop new distribution relationships and a reduction or delay
in sales to significant distribution partners could hurt our business

We sell our products and services through multiple distribution channels in the United States
and internationally, including leading industry distributors, value-added resellers, systems
integrators, service providers and other indirect channel partners. We have a limited number of
agreements with companies in these channels, and we may not be able to increase our number of
distribution relationships or maintain our existing relationships. Recruiting and retaining
qualified channel partners and training them in our technologies requires significant time and
resources. If we are unable to establish or maintain our indirect sales channels, our business and
results of operations will be harmed. In addition, two worldwide distributors of our products
accounted for 24.7% of our total net revenue for fiscal year 2010. One worldwide distributor of our
products accounted for 15.4% of our total net revenue for fiscal year 2009. One worldwide
distributor of our products accounted for 19.2% of our total net revenue for the six months ended
March 31, 2011. A substantial reduction or delay in sales of our products to these distribution
partners, if not replaced by sales to other indirect channel partners and distributors, could harm
our business, operating results and financial condition.

Undetected software or hardware errors may harm our business and results of operations

Our products may contain undetected errors or defects when first introduced or as new versions
are released. We have experienced these errors or defects in the past in connection with new
products and product upgrades. We expect that these errors or defects will be found from time to
time in new or enhanced products after commencement of commercial shipments. These problems may
cause us to incur significant warranty and repair costs, divert the attention of our engineering
personnel from our product development efforts and cause significant customer relations problems.
We may also be subject to liability claims for damages related to product errors or defects. While
we carry insurance policies covering this type of liability, these policies may not provide
sufficient protection should a claim be asserted. A material product liability claim may harm our
business and results of operations.

Our products must successfully operate with products from other vendors. As a result, when
problems occur in a network, it may be difficult to identify the source of the problem. The
occurrence of software or hardware problems, whether caused by our products or another vendors
products, may result in the delay or loss of market acceptance of our products. The occurrence of
any of these problems may harm our business and results of operations.

A substantial portion of our business depends on the demand for information technology by
large enterprise customers and service providers, the overall economic health of our current and
prospective customers and the continued growth and evolution of the Internet. International,
national, regional and local economic conditions, such as recessionary economic cycles, protracted
economic slowdown or further deterioration of the economy could adversely impact demand for our
products. The purchase of our products is often discretionary and may involve a significant
commitment of capital and other resources. Continued weak economic conditions or a reduction in
information technology spending even if economic conditions improve would likely result in longer
sales cycles and reduced product sales, each of which would adversely impact our business, results
of operations and financial condition.

Our investments in auction rate securities are subject to risks that may cause losses and affect
the liquidity of these investments

At March 31, 2011, the fair value of our AAA/A- (or equivalent) rated municipal auction rate
securities (ARS) was approximately $16.4 million. We may not be able to liquidate these ARS and
realize their full carrying value unless the issuer calls the security, a successful auction
occurs, a buyer is found outside of the auction process, or the security otherwise matures. While
we do not believe the decline in the carrying values of these municipal ARS is permanent, if the
issuers of these securities are unable to successfully close future auctions and their credit
ratings are lowered, we may be required to record future impairment charges related to these
investments, which would harm our results of operations. We believe certain of these
available-for-sale investments may remain illiquid for longer than twelve months and as a result,
we have classified these investments as long-term as of March 31, 2011.

Our operating results are exposed to risks associated with international commerce

As our international sales increase, our operating results become more exposed to
international operating risks. These risks include risks related to recessionary economic cycles or
protracted slowdowns in economies outside the United States, foreign currency exchange rates,
managing foreign sales offices, regulatory, political or economic conditions in specific countries,
military conflict or

terrorist activities, changes in laws and tariffs, inadequate protection of
intellectual property rights in foreign countries, foreign regulatory requirements and natural
disasters. All of these factors could have a material adverse effect on our business. We intend to
continue expanding into international markets. International sales represented 41.4% and 44.7%
of our net revenues for the fiscal years ended September 30, 2010 and 2009, respectively, and 41.1%
for the six months ended March 31, 2011.

Our products are subject to various regulations promulgated by the United States and various
foreign governments including, but not limited to, environmental regulations and regulations
implementing export license requirements and restrictions on the import or export of some
technologies, especially encryption technology. Changes in governmental regulation and our
inability or failure to obtain required approvals, permits or registrations could harm our
international and domestic sales and adversely affect our revenues, business and operations.

A change in accounting policies can have a significant effect on our reported results and may
even affect our reporting of transactions completed before the change is effective. New
pronouncements and varying interpretations of existing pronouncements have occurred with frequency
and may occur in the future. Changes to existing rules, or changes to the interpretations of
existing rules, could lead to changes in our accounting practices, and such changes could adversely
affect our reported financial results or the way we conduct our business.

Acquisitions present many risks and we may not realize the financial and strategic goals that are
contemplated at the time of the transaction

With respect to our past acquisitions, as well as any other future acquisitions we may
undertake, we may find that the acquired businesses, products or technologies do not further our
business strategy as expected, that we paid more than what the assets are later worth or that
economic conditions change, all of which may generate future impairment charges. Our acquisitions
may be viewed negatively by customers, financial markets or investors. There may be difficulty
integrating the operations and personnel of the acquired business, and we may have difficulty
retaining the key personnel of the acquired business. We may have difficulty in integrating the
acquired technologies or products with our existing product lines. Our ongoing business and
managements attention may be disrupted or diverted by transition or integration issues and the
complexity of managing geographically and culturally diverse locations. We may have difficulty
maintaining uniform standards, controls, procedures and policies across locations. We may
experience significant problems or liabilities associated with product quality, technology and
other matters.

Our inability to successfully operate and integrate newly-acquired businesses appropriately,
effectively and in a timely manner, or to retain key personnel of any acquired business, could have
a material adverse effect on our ability to take advantage of further growth in demand for
integrated traffic management and security solutions and other advances in technology, as well as
on our revenues, gross margins and expenses.

Our success depends on our key personnel and our ability to attract and retain qualified sales and
marketing, operations, product development and professional services personnel

Our success depends to a significant degree upon the continued contributions of our key
management, product development, sales, marketing and finance personnel, many of whom may be
difficult to replace. The complexity of our application delivery networking products and their
integration into existing networks and ongoing support, as well as the sophistication of our sales
and marketing effort, requires us to retain highly trained professional services, customer support
and sales personnel. Competition for qualified professional services, customer support and sales
personnel in our industry is intense because of the limited number of people available with the
necessary technical skills and understanding of our products. Our ability to retain and hire these
personnel may be adversely affected by volatility or reductions in the price of our common stock,
since these employees are generally granted restricted stock units. The loss of services of any of
our key personnel, the inability to retain and attract qualified personnel in the future or delays
in hiring qualified personnel may harm our business and results of operations.

We are a party to lawsuits in the normal course of our business. Litigation in general, and
intellectual property and securities litigation in particular, can be expensive, lengthy and
disruptive to normal business operations. Moreover, the results of complex legal
proceedings are difficult to predict. Responding to lawsuits has been, and will likely
continue to be, expensive and time-consuming for us. An unfavorable resolution of these lawsuits
could adversely affect our business, results of operations or financial condition.

Anti-takeover provisions could make it more difficult for a third party to acquire us

Our Board of Directors has the authority to issue up to 10,000,000 shares of preferred stock
and to determine the price, rights, preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by the shareholders. The rights of the
holders of common stock may be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. The issuance of preferred stock
may have the effect of delaying, deferring or preventing a change of control of our company without
further action by our shareholders and may adversely affect the voting and other rights of the
holders of common stock. Further, certain provisions of our bylaws, including a provision limiting
the ability of shareholders to raise matters at a meeting of shareholders without giving advance
notice, may have the effect of delaying or preventing changes in control or management of our
company, which could have an adverse effect on the market price of our common stock. In addition,
our articles of incorporation provide for a staggered board, which may make it more difficult for a
third party to gain control of our Board of Directors. Similarly, state anti-takeover laws in the
State of Washington related to corporate takeovers may prevent or delay a change of control of our
company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

At March 31, 2011, the fair value of our AAA/A- (or equivalent) rated municipal ARS was
approximately $16.4 million. ARS are collateralized long-term debt instruments that provide
liquidity through a Dutch auction process that resets the applicable interest rate at
pre-determined intervals, typically every 7, 28 or 35 days. Beginning in February 2008, auctions
failed for approximately $53.4 million in par value of municipal ARS we held because sell orders
exceeded buy orders. When these auctions failed to clear, higher interest rates for those
securities went into effect. However, the funds associated with these failed auctions will not be
accessible until the issuer calls the security, a successful auction occurs, a buyer is found
outside of the auction process, or the security matures. The underlying assets of the municipal ARS
we hold, including the securities for which auctions have failed, are generally student loans which
are guaranteed by the U.S. government. Based on our expected operating cash flows and our other
sources of cash, we do not believe that any reduction in liquidity of our municipal ARS will have a
material impact on our overall ability to meet our liquidity needs. We have no intent to sell,
wont be required to sell, and believe we will hold these securities until recovery. We believe
certain of these available-for-sale investments may remain illiquid for longer than twelve months
and as a result, we have classified $19.0 million (par value) of securities as long-term as of
March 31, 2011.

Management believes there have been no other material changes to our quantitative and
qualitative disclosures about market risk during the six month period ended March 31, 2011,
compared to those discussed in our Annual Report on Form 10-K for the year ended September 30,
2010.

Item 4. Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act)) are designed to ensure that
required information is properly recorded, processed, summarized and reported within the required
timeframe, as specified in the rules set forth by the SEC. Our disclosure controls and procedures
are also designed to ensure that information required to be disclosed is accumulated and
communicated to management, including our Chief Executive Officer and Chief Accounting Officer, to
allow timely decisions regarding required disclosures.

Our management, with the participation of our Chief Executive Officer and Chief Accounting
Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31,
2011. Based upon that evaluation, our Chief Executive Officer and Chief Accounting Officer have
concluded that our disclosure controls and procedures were effective as of March 31, 2011.

There were no changes in our internal control over financial reporting (as defined in Rules
13a-15(f) or 15d-15(f) of the Exchange Act) during the period covered by this quarterly report that
have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.

We are not aware of any additional pending legal proceedings that, individually or in the
aggregate, would have a material adverse effect on our business, operating results, or financial
condition. We may in the future be party to litigation arising in the ordinary course of business,
including claims that we allegedly infringe upon third-party intellectual property rights. Such
claims, even if not meritorious, could result in the expenditure of significant financial and
managerial resources.

Reference is made to Item 1, Note 5, Commitments and Contingencies  Legal Proceedings, of
Part I of this Quarterly Report on Form 10-Q and Item 3, Legal Proceedings, in the Form 10-K, filed
November 23, 2010 for descriptions of our legal proceedings. We continue to believe that the
resolution of these legal proceedings will not have a material adverse effect on us and there have
been no material developments since the time of the Form 10-K filing, except as noted in Item 1,
Note 5 of Part I of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

Information regarding risk factors appears in Part I  Item 2 of this Quarterly Report on
Form 10-Q, Managements Discussion and Analysis of Financial Condition and Results of Operations
 Risk Factors that May Affect Future Results. This information includes previously disclosed
material changes to the risk factors set forth in Part I  Item 1A of the Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On October 22, 2008, we announced that our Board of Directors approved a program to repurchase
up to an additional $200 million of our outstanding common stock. As of September 30, 2010, we had
$37.6 million remaining to purchase shares as part of this repurchase program. On October 26, 2010,
we announced that our Board of Directors approved a new program to repurchase up to an additional
$200 million of our outstanding common stock. Acquisitions for the share repurchase programs will
be made from time to time in private transactions or open market purchases as permitted by
securities laws and other legal requirements. The programs may be discontinued at any time. As of
May 3, 2011 we had repurchased and retired 5,134,929 shares at an average price of $45.51 per share
and we had $166.0 million remaining to purchase shares as part of our repurchase programs.

Shares repurchased and retired as of May 3, 2011 are as follows (in thousands, except shares
and per share data):

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

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Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*

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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS**

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*

Filed herewith.

**

XBRL (Extensible Business Reporting Language) information is furnished and not filed
herewith, is not a part of a registration statement or Prospectus for purposes of sections 11
or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the
Securities Exchange Act of 1934, and otherwise is not subject to liability under these
sections.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this
6th day of May, 2011.

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

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Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*

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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS**

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XBRL Instance Document

101.SCH**

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XBRL Taxonomy Extension Schema Document

101.CAL**

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XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**

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XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**

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XBRL Taxonomy Extension Label Linkbase Document

101.PRE**

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XBRL Taxonomy Extension Presentation Linkbase Document

*

Filed herewith.

**

XBRL (Extensible Business Reporting Language) information is furnished and not filed
herewith, is not a part of a registration statement or Prospectus for purposes of sections 11
or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the
Securities Exchange Act of 1934, and otherwise is not subject to liability under these
sections.

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